The China Council for International Cooperation on Environment and Development (CCICED), an influential advisory body that includes Chinese and foreigners, has recommended measures to make Chinese finance better support environmental sustainability, domestically and internationally.
The recommendations, which would go beyond those in place in many countries with better developed financial sectors, are contained in the report of the Council’s Green Finance Task Force. Dr. Andrew Steer, President and CEO, World Resources Institute, and Chen Yulu, President, Renmin University of China, served as task forced co-chairs.
“China is taking the issue of sustainable investment very seriously,” said Dr. Steer. “They have the potential to emerge as a global leader in this new and important field.” (Dr. Steer described how the Council’s report relates to China’s broader economic and environmental challenges in a blog post.
Chen Jinin, Minister of Environmental Protection, told delegates that China is going to reform its institutions to make them serve the environment. He highlighted measures such as scaling up green credits, setting up green development funds, imposing compulsory information disclosure requirements for listed companies, and requiring mandatory environmental liability insurance for high risk industries.
China will assume presidency of the G-20 group of leading economies in 2016, and it is anticipated that the government may put forward green finance as part of the agenda. The G-20 recently established a working group on the topic led jointly by the People’s Bank of China and the Bank of England.
The Council’s recommendations an idea of the sorts of policies that China might consider proposing for the G-20 agenda. The recommendations include:
-- Create legal conditions to encourage behavioral change such as: changing commercial banking laws to include lender’s liability for environmental damage caused by borrowers; mandatory disclosure for listed companies and high polluting entities; and compulsory environmental insurance for sectors with high probability of damaging the environment.
-- Use fiscal and tax incentives to leverage public finance. This entails interest rate subsidies for green credits, a guarantee mechanism supported by public funds for green projects, and tax incentives for revenue from green bonds.
-- Institutional infrastructure to facilitate green investment, such as a green credit rating system, green investors’ network, green finance database, and others.
-- Provide financial tools and instruments to scale up green investment, such as setting up a national Green Development Fund and issuing green bonds.
-- Green Chinese overseas investment and the China-led new initiatives. In addition to encouraging environmental and social risk management with Chinese corporations investing beyond China’s borders, this entails greening the Asian Infrastructure Investment Bank, the New Development Bank, the Silk Road Fund, and the Belt and Road Initiative.
The CCICED Green Finance Task Force also recommended that the Green Finance Study Group overseen by the People’s Bank of China and the Bank of England help banks and institutional investors build capacity in assessing environmental risks, facilitate stress tests in financial institutions on environmental risk exposure, develop common principles and standards for information disclosure, and establish consistent rules on the definition and classification of green bonds to facilitate cross-border green investments.